RICHMOND--An organization that opposes payday loan operations yesterday released a report that shows payday loans cost consumers more than $4 billion in excessive fees a year.
The report, issued by the Center for Responsible Lending, based in North Carolina, comes as Virginia legislators are scheduled to consider a bill that would outlaw payday loans altogether, along with one to impose additional regulations on the industry.
Payday loans are short-term loans, usually due within two weeks of the time they're taken out. Lenders impose fees on those loans that in some states exceed 300 percent, which means that people who take out such a loan often find themselves stuck in a cycle of taking out more loans just to cover the interest.
In the Fredericksburg area, the payday loan offices are located throughout main thoroughfares. Among those hit hard by the loan roller-overs are service members.
Earlier this year, officials at Quantico Marine Corps Base told of a Marine who rolled over a loan so often it grew to $14,000 in 18 months.
The CRL's study showed that 90 percent of payday loans go to people who take out five or more such loans a year, and 60 percent of loans go to those who take out 12 or more a year.
"Payday loans do indeed sink borrowers in debt that can be as difficult to escape as quicksand," said CRL President Michael Calhoun, during a telephone news conference outlining the report. "These repeat borrowers are far worse off for having taken out a payday loan. They end up paying back far more in interest than they originally borrowed."
Virginia began allowing payday lending in 2002, and in short order hundreds of payday loan businesses sprung up around the state. According to the report, as of 2005 there were 756 payday loan stores in Virginia. Borrowers had an average loan of $355, on which they paid an average fee of 14.8 percent--or 386 percent if averaged out over a year.
The high interest pushes people who are already having trouble making ends meet to take out a second loan to pay the first. Many fall into a cycle, taking out numerous loans just to pay the accumulating interest.
Various studies have also shown payday loan companies target low-income people--many clustered around military bases, until laws were passed limiting the amount of interest payday loan companies can charge to members of the military.
Now, payday loan companies can charge military members only 36 percent interest.
Legislation that allowed payday lenders to come into Virginia was controversial when first passed, and this year lawmakers will deal with several bills to restrict it or repeal it altogether.
On Tuesday, the House Commerce and Labor Committee will hear Del. John O'Bannon's bill to repeal the law authorizing payday loan transactions. The committee will also hear two car title loan bills--car title loans can be equally as predatory as payday loans, according to opponents of both.
Other bills in the pipeline for the 2007 session include at least one, from Del. Glenn Oder, to restrict payday loans, requiring lenders to keep a database of all loans and to refuse to lend money to anyone who already has more than one loan out, or to re-loan money to someone who closed a loan less than 48 hours earlier.
Opponents of payday lending, including the Virginia Partnership to Encourage Responsible Lending, oppose Oder's bill because they say it allows some of the payday loan industry's most problematic practices to continue.
To reach CHELYEN DAVIS:
Email: cdavis@freelancestar.com